Film Subsidies Under Scrutiny In North Carolina

North Carolina’s film tax credit will expire at the end of the year, prompting some Tar Heels to reconsider whether incentives to attract businesses to the state are ultimately beneficial.

The state began losing film productions to neighboring states and Canada around 2000, WRAL reported on Monday, inducing lawmakers to create an incentive program in 2005 to lure producers back to the state through tax credits.

“Since 2010, productions have been able to claim a 25 percent refund on qualified spending on a production,” in the form of refundable tax credits worth up to $20 million. That program will expire on December 31, to be replaced with a grant program that will have $10 million in funding for the first six months of next year.

The film industry, however, contends that, “film and television credits spur so much economic activity that the taxes on that additional work repay the state in full for its investment.”

One study, sponsored in part by the Motion Picture Association of America, “concluded that for every $1 spent in film and television credits the film and television industry generated $1.52 of tax revenue and $9.10 of direct spending.”

The North Carolina General Assembly subsequently commissioned it own report, which “estimated that in terms of return to the state’s coffers, North Carolina only recouped 46 cents on every dollar in credit spent,” a figure that “is more in line with studies conducted in Ohio, Massachusetts, Michigan and other states.”

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Yet film credits are just one aspect in a larger conversation about the efficacy of business incentives, discussed Monday by WRAL in the first of a three-part series.

“States in the southeast have used incentive strategies to lure industry inside their borders since at least the 1930s,” according to the article, but the practice has expanded particularly rapidly over the past two decades due to competition between states.

For North Carolina, the turning point came in 1993, when the state lost a competition to attract a new Mercedes-Benz manufacturing facility. In that case, the state failed to persuade Mercedes that North Carolina’s “infrastructure, geography, and education system” could be more advantageous than the tax credits offered by neighboring states, causing a Winston-Salem banker to lament that, “In the end, it’s a zero-sum game with a minority of companies profiting at the expense of the majority of existing industry and taxpayers.”

Legislators took a different lesson from the episode, creating a $5 million Governor’s Industrial Recruitment Competitiveness Fund in 1993, and adding a system of tax credits in 1996 that “generated about $2 billion for 3,000 companies,” in its first decade.

“By 2002, state officials decided those efforts weren’t paying off in the jobs North Carolina needed,” but rather than scale incentives back, “the legislature added more money to the governor’s recruitment program,” and created the Job Development Investment Grant program to further supplement the effort.

The state’s tax rebate program expired earlier this year—though it remains “committed to paying out nearly $800 million through 2027″—leaving the two grant programs as North Carolina’s largest business development programs.

A few of the state’s current leaders seem to agree, but are reluctant to “unilaterally disarm” while other states continue to offer incentives, and have mused that a federal moratorium could provide a way around that problem.

“I’d love to see the federal government say we’re not going to deal with this anymore,” North Carolina Commerce Secretary Sharon Decker said, adding, “Until that happens, we really can’t afford not to be in the game.”

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